How RegTech Is Creating A More Compliant FinTech Industry
Arguably, the only real downside to the widespread use of FinTech is that it has opened financial institutions up to increased cyberthreats and fraudulent activity. This is creating a greater need for vigilant regulatory enforcement within the industry. However, compliance itself is becoming increasingly complex and intricate, meaning that businesses need to dedicate a sufficient amount of time, resources, and finances to staying ahead of regulators.
Just as FinTech has simplified many complicated financial processes, regulatory technology (or RegTech) has been simplifying compliance across the industry. The financial world is investing heavily in RegTech, with global investments surpassing $1 billion in recent years. This FinTech spinoff is helping compliance teams keep up with regulatory changes by streamlining every aspect of the compliance chain. All in all, RegTech is unlocking opportunities for businesses to better protect themselves as well as their consumers.
What is RegTech?
In simple terms, RegTech manages regulatory processes, such as monitoring, reporting, and compliance, within the financial industry through technology. Typically, RegTech companies combine cloud computing technology, artificial intelligence, and machine learning systems to offer software-as-a-service (SaaS) models that help businesses meet various regulatory requirements. These technologies are faster and more accurate than manual processes, which are often time consuming and prone to human error.
One of the biggest challenges companies face with regards to compliance is an ever-changing regulatory landscape that is constantly being updated with intricate amendments from jurisdiction to jurisdiction. Know Your Customer (KYC) and Anti Money Laundering (AML) programs need to follow rigorous reporting and checks to remain effective and to ensure companies are not in breach of any regulatory stipulations. RegTech enables FinTech companies to adhere to government rules more efficiently and comprehensively by automating processes ranging from employee surveillance and fraud prevention to compliance data management and audit trails. Both financial institutions and regulators use RegTech to deal with complicated compliance processes.
How RegTech is helping institutions achieve compliance
RegTech companies are creating innovative, technology-driven systems to safeguard and improve digital financial products.
Here are just some of the ways RegTech is helping financial firms and regulatory bodies remain on top of their compliance obligations:
Time management: RegTech systems reduce the time it takes to onboard clients and perform thorough security and identity checks. Furthermore, RegTech is able to identify potential threats from money laundering and terrorist organisations. The digitisation of the KYC process has resulted in more consistent regulatory compliance through automated systems.
Minimising costs and fines: By detecting security threats quickly, companies can minimise costs associated with lost funds and regulatory fines. Additionally, by reducing non-compliance issues, financial institutions can also minimise potential reputational risks relating to data breaches and cyber security as a result of poor compliance monitoring.
Quicker regulation enforcement: Because financial institutions can now monitor regulatory changes in real-time, RegTech can adapt more quickly to new regulations. As a result, changes in internal policies can be implemented throughout the company in a fraction of the time required by manual implementation.
More responsive reporting: RegTech systems monitor transactions and online activities in real-time. When an irregularity is detected, the system determines whether the activity is fraudulent and alerts the financial institutions. AI and machine learning systems are able to identify threats and financial crimes quickly. They also provide enhanced tracking of suspicious activities and scams, such as money laundering and terrorist financing, by recognising patterns and outlier activities through deep learning systems.
Enhanced data analytics: RegTech processes also ensure improved data analysis for financial institutions. Through data analysis, financial institutions can better understand the financial history of their clients, both within their organisation and elsewhere.
Centralised regulatory reporting: Regulators are now using RegTech to process and integrate regulatory applications and determine which companies to investigate throughout the year. These technological solutions analyse reports and identify problematic data that may indicate potential threats and security issues at financial firms. On the flip side, because they are now facing enhanced monitoring capabilities from regulators, financial firms are using RegTech to achieve more accurate reports, which they can submit to regulators who can better track the status of their portfolios.
As RegTech becomes more pervasive throughout the FinTech industry, financial firms will be better equipped to streamline their compliance obligations, reduce unnecessary and costly risks, and lower their overall compliance costs.